Statement No. 142 requires that goodwill be testeda guarantee, a liability for impairment at the reporting unit level at the time of its adoption and at least annually thereafter, utilizing a two-step methodology. The initial step required the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. When the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and initial measurement provisions of Interpretation No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  The disclosure requirements in Interpretation No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.  The Company has made certain guarantees that may be subject to the liability recognition provisions of the Interpretation if modified.  The Company adopted the disclosure requirements of the standard for its December 31, 2002 reporting unit exceededperiod.

In January 2003, the carrying value, no impairmentFASB issued Interpretation No. 46, Consolidation of Variable Interest Entities.  The objective of Interpretation No. 46 is to improve financial reporting by companies involved with variable interest entities.  The Interpretation requires variable interest entities to be consolidated by a company if that company is subject to a majority of the risk of loss was recognized.from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both.  The second step requiredCompany currently does not have any variable interest entities and, therefore, will apply the provisions of Interpretation No. 46 prospectively.

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The EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, addresses situations which may involve the delivery or performance of multiple products, services, and/or rights to use assets, and for which performance may occur at different points in time or over different periods of time.  The Issue also addresses whether the different revenue-generating activities, or deliverables, are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables.  The issue applies to all contractual arrangements under which a vendor will perform multiple revenue-generating activities.  Issue No. 00-21 is effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted.  The Company will adopt this guidance prospectively for all revenue arrangements entered into after January 1, 2003.  The Company does not believe that the impact of adoption will be material to reported operating results.

Note 4 – Discontinued Operations

On March 10, 2003, the Company and Educate, Inc., a company newly formed by Apollo Management, L.P., (“Apollo”) executed an Asset Purchase Agreement that provided for the acquisition by Educate, Inc. of substantially all of the Company’s K-12 education business units, including eSylvan, Inc. and Connections Academy, Inc., which are investments held by Sylvan Ventures (“K-12 Disposal Group”). The consideration for the sale of the assets comprising the K-12 Disposal Group will consist of the following at closing:

•                  Cash of $112,000 to determine$117,000 plus an amount equal to the implied fairdifference between $72,500 and the conversion value of goodwill. Whenthe convertible debentures issued by the Company and surrendered by Apollo at closing, less any accrued and unpaid interest on the debentures, plus deferred payments of approximately $3.0 million;

•                  A subordinated note in the amount of $55,000, bearing interest at 12% per annum and maturing in 2009;

•                  The surrender of convertible debentures issued by the Company with a conversion value of up to $72,500;

•                  The assumption of trade accounts payable of the K-12 business units, and other specified liabilities of the K-12 business units;

•                  Apollo’s 25% preferred interest in Sylvan Ventures.

Additionally, the proceeds received by the Company are subject to post-closing adjustments for specified changes in working capital from the date of the agreement to the closing date.  The Company is also eligible for up to $10 million of additional consideration if certain operations of Connections Academy exceed specified levels of earnings any time prior to December 31, 2007.  The transaction will result in the elimination of various consent and governance rights that had been held by Apollo.  Apollo’s representation on the Company’s Board of Directors will be reduced from two board seats to one.

As a result of this expected disposal transaction, the Company estimates that it will record a yet to be determined gain from the disposition of its K-12 business units upon closing of the sale to Educate, Inc.  (expected to be in the second quarter of 2003), representing the difference between the carrying value of the reporting unit goodwill exceedednet assets sold (approximately $111 million at March 31, 2003) and net proceeds upon sale.

In the implied fair valuefirst quarter of that goodwill, an impairment loss was recognized in an amount equal to that excess, not exceeding the carrying value of the goodwill. The fair values of reporting units

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and the related implied fair values of their respective goodwill were determined using discounted cash flows.

        As a result of testing goodwill for impairment in accordance with Statement No. 142, as of January 1, 2002,2003, the Company recorded a non-cash chargeloss on disposal of $78,634,discontinued operations of $5,217, net of income tax benefit of $7,700, which is included as a cumulative effect of a change in accounting principle in the consolidated statements of operations. The impairment charge relates solely to the Wall Street Institute ("WSI") business and consists of the write-down of goodwill$7,425 related to the distressedwrite-off of the net assets of the UK/France Disposal Group.  The Company expects to sell these two operations in Spain ($22,551—included in the English Language Instruction—Spain segment) andfor principally contingent amounts originally paid for operations in other countries ($56,083—included in the Wall Street Institute business unit within the International Universities segment). Included in this cumulative effect of a change in accounting principle in the International Universities segment are charges of $2,491 which were identified in the third quarter of 2002 in connection with the reconciliation of intangibles related to the foreignfuture consideration by December 31, 2003.

The operations of the WSI business.

        In addition to requiring annual impairment tests, Statement No. 142 established that goodwill would no longerCompany’s disposal groups comprising its K-12 business units are classified as discontinued operations.  Because the operations and cash flows of these components will be amortized. Prior to January 1, 2002,eliminated from the ongoing operations of the Company amortized goodwill over periods ranging from 15 to 35 years. The followingas a result of the disposal transactions, and because the Company will not have any significant continuing involvement in the held for sale operations after the disposal transactions, the results of operations of this component will be reported for all periods as a separate component of income, net of income taxes.

Summarized operating results from the Company give effect todiscontinued operations included in the non-amortization provisionsCompany’s statement of Statement No. 142 assuming adoptionoperations are as of January 1, 2001:follows for the three months ended March 31:

 The following table displays the intangible assets that continue to be subject to amortization

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Assets and goodwill not subject to amortization as of September 30, 2002:

        The estimated amortization expense for intangible assets for eachliabilities of the five years subsequent todiscontinued operations were as follows:

The accompanying balance sheets at March 31, 2003 and December 31, 2001 is as follows: 2002—$1,867; 2003—$1,831; 2004—$1,575; 2005—$646; and 2006—$412.

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Note 6—Investments

Consolidated Investments

        eSylvan, Inc. ("eSylvan") was formed to distribute the Company's learning center tutoring product to students at home via computer. During 2001, eSylvan issued common stock representing a minority ownership interest to franchisees of Sylvan Learning Centers to more fully leverage the relationship between center-based and online tutoring. Sylvan Ventures made two preferred stock purchases during 2002 for $9,400, which increased the Sylvan Ventures ownership share to 92%. The minority interest ownership of the franchisees represents 8% of the voting ownership interest at September 30, 2002.

        Walden is an online university offering Ph.D. and other graduate-level degree programs in education, management and the social and behavioral sciences. Effective February 1, 2002, Sylvan Ventures exercised its option to acquire an additional 10% of Walden, increasing its voting ownership to 51%. As a result, Sylvan Ventures changed its method of accounting for its investment in Walden from the equity method to the consolidation method.

        EdVerify, Inc. ("EdVerify") is a business to business digital service provider that specializes in verifying the higher education enrollment and degree attainment of job candidates and credit requestors. Effective June 1, 2002, Sylvan Ventures acquired an additional 35% ownership in EdVerify for $2,507, increasing its voting ownership to 68%. As a result, Sylvan Ventures changed it method of accounting for its investment in EdVerify from the equity method to the consolidation method.

        Connections Academy, Inc. ("Connections Academy") was formed by Sylvan Ventures to provide online charter schooling to the K-12 market. Connections Academy began providing virtual schooling to students in the fall of 2002. Sylvan Ventures owns 100% of Connections Academy.

        In November 2002, Sylvan Ventures completed its acquisition of substantially allclassifies the assets and certain liabilities of the National Technological University ("NTU")asset disposal groups based on the probable timing of sales proceeds.

Note 5 - Investments

Sylvan Ventures

On March 10, 2003 Sylvan acquired the remaining membership interests in Sylvan Ventures not owned by Sylvan or Apollo for consideration of 581 shares of Sylvan common stock, which is restricted from sale for three years. These membership interests were held by a group of investors, including certain executives of the Company.  Additionally, all membership profit interests in Sylvan Ventures were eliminated.  Upon completion of the sale of the K-12 business units, the Company will own all of the membership interests of Sylvan Ventures LLC.  Contemporaneous with these transactions, the Company announced its intention to disband Sylvan Ventures and Stratys Learning Solutions, Inc. (the holding companysell assets non-strategic to its post-secondary business, and recorded a loss on Sylvan Ventures assets held for sale of NTU)$8,394, primarily representing the book value of  Sylvan Ventures cost basis investments in iLearning ($298) and ClubMom ($7,596). In addition, Sylvan Ventures wrote down the balance in its equity method investment in Chancery through a charge to equity in net loss of affiliates.  Sylvan Ventures also recorded an operating loss of $221 related to the write-off of the net assets of the consolidated investment in EdVerify.  These investments are being marketed to a single buyer and are expected to be sold by June 30, 2003 for $7,315 in cashprincipally contingent consideration.

The remaining investments of Sylvan Ventures  consist of the consolidated investments of Walden and NTU, which will be managed and reported within the Online segment, and a promissory$2,371 note payable of $7,500 due in 2007. In connection withreceivable that will mature over the acquisition of NTU, there is contingent consideration payable to the sellers for a minimum of $2,000 and a maximum of $3,000 if NTU is sold or is involved in an initial public offering where the value of NTU exceeds $200,000. NTU is a leading distance learning university accredited by the North Central Association, offering master's degrees specializing in engineering, technology and management.

Investment in Affiliates (Equity Method Investments):next two years.

 The Company's investment in and advances to affiliates consist of investments in and loans to companies in the initial or early stages of development. These companies are frequently illiquid or experiencing cash flow deficits from operations. Further, investments are generally unsecured and subordinated to the claims of other creditors. Accordingly, the Company's investments in and advances to affiliates are subject to a high degree of investment and credit risk. The Company has made estimates of the recoverability of loans and advances to its affiliates, and due to the inherent uncertainty of the operations of these affiliates, it is possible that these estimates may change in the near term.

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Investments in and advances to affiliates consist principally of investments in common stock and preferred stock, and convertible notes, as follows as of September 30, 2002March 31, 2003 and December 31, 2001,2002, respectively:

 At September 30, 2002, the difference between the carrying amount of equity method investments and the amount of underlying

Sylvan Ventures equity in net assets of these investments was $5,577. Under the provisions of Statement No. 142, the goodwillgains (losses) related to equity methodthe investments is no longer amortized beginning in January 2002. Prior to 2002, the goodwill was amortized primarily over a three-year period as a component of the Company's allocable share of income or loss. Foraffiliates for the three monthmonths ended March 31, 2003 and nine month periods ended September 30, 2001, equity in net loss2002 was $865 (excluding the write-down of affiliates included amortization of $2,128Chancery) and $7,106,$1,810, respectively.

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Each period in the tables below includes summarized financial data of those affiliates accounted for using the equity method in which Sylvan Ventures had an interest at the end of the respective period, and includes results of operations data of the affiliatesaffiliate for the entire period.

Other Investments (Cost Method Investments):quarter.

Note 6 - Goodwill and Other investments consistIntangible Assets

The following table summarizes the intangible assets that are subject to amortization as of non-marketable investments in common and preferred stocks of private companies in which the Company does not exercise significant influence. These investments areMarch 31, 2003:

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carried at cost unless a decline in

The estimated fair value is determined to be permanent. Other investments consistedamortization expense for intangible assets for each of the following:

Realized Investment Income and Losses

        During the three month period ended September 30, 2002, the Company recorded a loss of $7,359 related to the write-off of its investment in and advances to the Frontline Group. This investment write-off was a result of challenges facing the corporate training industry in general, and Frontline Group specifically. The Company originally accepted shares of common stock in Frontline Group, in 1999, as consideration for the sale of the PACE business unit.

        During the three month period ending June 30, 2002, the Company sold its investment in Chauncey Group International, Ltd for cost plus accrued interest, yielding cash proceeds of $9,750. Additionally, Sylvan Ventures recorded a gain of $273 upon the exchange of its investment in HigherMarkets for 402 common shares of SciQuest.

        During the three month period ended September 30, 2001, Sylvan Ventures recognized a gain of $24,724 upon the sale of its 42% stake in Classwell Learning Group, Inc. Total proceeds of $31,807 were recorded as a receivable on September 30, 2001, and were subsequently received by Sylvan Ventures in October 2001.

        During the three month period ending June 30, 2001, the Company recorded a loss on investment of $14,231. This charge consisted of a write-off of notes receivable and advances to Caliber Learning Network, Inc. ("Caliber") of $7,497, as well as a charge of $6,734 for estimated liabilities relating to the Company's guarantee of certain non-cancelable Caliber lease obligations and other Caliber related liabilities incurred by the Company. As of September 30, 2002, management believes that its existing reserve balance is sufficient to meet its ultimate unsettled obligations related to Caliber. Due to the uncertainties surrounding the bankruptcy proceedings and the ultimate settlement of Caliber's lease and other liabilities, it is reasonably possible that the Company's loss estimate may change prior to finalization.

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Note 7—Long Term Debt

        Long-term debt consists of the following:

        In August 2002, the Company entered into a new mortgage loan agreement for $6,086 with a bank in Switzerland to finance a portion of the initial cash purchase price of Glion. The mortgage loan bears interest at 2.95% and matures on August 31, 2003. Additionally, in connection with the acquisition of Glion, the Company assumed debt of approximately $26,800, primarily mortgage notes payable, with interest rates ranging from 3.8% to 6.0%.

        On June 30, 2000, the Company issued $100,000 of ten-year convertible subordinated debentures to Apollo Management Group. The debentures bear interest at a fixed rate of 5.00%, payable semi-annually, and are convertible at any time into the Company's common stock at $15.735 per share. The debentures are redeemable by the Company,five years subsequent to June 30, 2003, providing certain conditions are achieved including the average share price exceeding 150% of the conversion price. The debentures mature on June 30, 2010. In the first quarter of 2002, $5,000 of the debentures were converted into 318 shares of the Company's stock.

        The Company has a revolving credit facility (the "Facility") with a group of five banks, which allows the Company to borrow up to an aggregate of $100,000 at variable rates. Outstanding borrowings under the Facility are unconditionally guaranteed by a pledge of the capital stock of the Company's domestic subsidiaries. The Facility expires on December 23, 2003 and there were no borrowings outstanding at September 30, 2002 and December 31, 2001. Debt covenants of the Facility require the Company to maintain certain debt-to-earnings and interest coverage ratios. Other provisions require maintenance of minimum net worth levels and restrict advances, investments, loans, capital expenditures and dividends. At September 30, 2002 the Company was in compliance with the covenants under the Facility.

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Note 8—Due to Shareholders of Acquired Companies and Other Contingencies

        Due to shareholders of acquired companies consists of the following amounts payable in cash:

        In connection with certain acquisitions, variable amounts of contingent consideration are payable to the sellers based upon specified terms. All existing contingent consideration agreements are predicated upon improved operating profitability of the acquired entities and utilize multiples consistent with those used to calculate the initial purchase price. The Company will record the contingent consideration when the contingencies are resolved and the additional consideration becomes payable.

        Variable amounts of contingent consideration are payable to the seller of Les Roches if specified levels of earnings are achieved in 2002. Variable amounts of contingent consideration are payable to the seller of UDLA inis as follows: 2003 - $1,901; 2004 - $1,741; 2005 - $1,298; 2006 - $1,067 and 2007 if specified levels of earnings are achieved in 2004, 2005 and 2006. Additional purchase consideration of $500 is due to the sellers of UVM in 2003 if 2002 earnings exceed certain specified amounts.- $744.

 The Company has entered into agreements with certain franchisees of Sylvan Learning Centers and Wall Street Institute that allow the franchisees to require the Company to repurchase the centers at a predetermined multiple of operating results upon the achievement of specified operating thresholds. The Company does not believe that these commitments, if ultimately triggered by future events, would materially impact its liquidity.

Note 9—7 – Income Taxes

The tax provisions for the ninethree month periods ended September 30,March 31, 2003 and 2002 and 2001 were based on the estimated effective tax rates applicable for the full years, after giving effect to significant items related specifically to the interim periods, including the reported results of Sylvan Ventures'Ventures’ investments accounted for using the equity method.  The Company'sCompany’s income tax provisions for all periods consist of federal, state, and foreign income taxes.  The Company'sCompany’s effective tax rate from continuing operations was 20%37.9% for the ninethree months ended September 30, 2002, excluding the cumulative effect of the change in accounting principle.March 31, 2003.  Due to the volatility of Sylvan Ventures'Ventures’ income and losses, the Company'sCompany’s consolidated effective tax rate may fluctuate from quarter to quarter.  OnHowever, on a full year basis the Company estimates that the effective 2002 income tax rate for the Company prior to the cumulative effect of the change in accounting principle and excluding Sylvan Ventures, will be 30%. The Company estimates that the 2002 effective income tax rateand for Sylvan Ventures, for the year ending December 31, 2003 will be 24%.28.0% and 40.0%, respectively.  Fluctuations in the magnitude and timing of the tax

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impact of Sylvan Ventures'Ventures’ financial results may cause the Company'sCompany’s consolidated effective income tax rate to vary substantially from the statutory rate.

 The forecasted income tax rate for the Company excluding Sylvan Ventures has decreased from the income tax rate forecasted in the first quarter of 2002 due to the tax benefits associated with the loss recorded in connection with the sale of WSI Spain. The forecasted income tax rate for Sylvan Ventures has decreased from the income tax rate forecasted in the first quarter of 2002 due to the decrease in forecasted losses and the associated tax benefits. The impact of these changes in the estimated effective income tax rates for the three month and nine month periods ended September 30, 2002 was to increase the net loss by approximately $200 and $300, respectively.

At September 30, 2002,March 31, 2003, undistributed earnings of non-U.S. subsidiaries totaled approximately $128,000.$104,300. Deferred tax liabilities have not been recognized for these undistributed earnings because it is management'smanagement’s intention to reinvest such undistributed earnings outside of the U.S.United States.  If all undistributed earnings were remitted to the U.S.,United States, the amount of incremental U.S. federal income taxes, net of foreign tax credits, would be approximately $36,900.$21,400.

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Note 10—Stockholders'8 – Stockholders’ Equity

The components of stockholders'stockholders’ equity are as follows: